Flash PMIs signal a contracting economy – EY ITEM Club comments

• November's UK flash PMI reported that both the services and manufacturing sectors remain in contractionary territory. The EY ITEM Club think that it is unlikely that the direction of the PMIs will shift anytime soon, with consumer and business demand continuing to soften.

• Positively, the survey did point to a further slowing of cost and price pressures. This is consistent with the EY ITEM Club’s expectation of a shift down to a 50bps rate increase at the Monetary Policy Committee meeting in December.

Martin Beck, chief economic advisor to the EY ITEM Club, says: “The November flash S&P Global/CIPS survey reported a minor rise in the composite PMI to 48.3, from 48.2 last month. Both the manufacturing (46.2) and services (48.3) PMIs remained in sub-50 contractionary territory, with both balances unchanged on the month.

“The survey reported a notable decline in new orders, with the fall in demand present in both consumer-facing businesses and business-to-business sales. Respondents pointed to the intensifying squeeze on household finances, the worsening outlook for the global economy, and a deterioration in confidence among both households and businesses. This weakness in demand suggests that activity is unlikely to pick up in the near-term. 

“However, November’s survey did indicate the easing of cost and price pressures. The easing in cost pressures was more modest, but the combination of that and weakening demand fed through to the slowest increase in prices charged for 15 months. This is consistent with the EY ITEM Club’s view that inflation likely peaked in October, although the fallback is likely to be gradual. A further softening in both activity and inflationary pressures is also in line with the EY ITEM Club’s expectation of a shift down to a 50bps rate increase at the MPC's next meeting in December.”